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For all the bad press about European debt and American unemployment, it's Asian stocks that have been drubbed the hardest. The MSCI Asia ex-Japan Index has skidded more than 30% from its April peak and is still off 20% -- worse than the corrections of 14% for the MSCI World Index and 9% for U.S. stocks.

Bargain hunters are prowling for a reason. Asian stocks are trading at 10.1 times projected 2012 profits, down from 15 times just two years ago. While that's still higher than their 8.9 multiple during the 2008 credit fiasco, it's already below lows of 10.4 times during the SARS epidemic, 10.9 times in the 2001 recession and 11 times in the 1998 Asian financial crisis.

Clearly, Asian markets have priced in a mild recession, but not a catastrophe, so things can still get uglier before they get better. Europe's woes might as well be Asia's, because exports drive 40% of Asia's gross domestic product. Analysts expect profits at non-Japanese Asian companies to grow just 11% next year, but targets will be slashed if Europe implodes. Cheap stocks can still get cheaper in a flood of earnings downgrades, and certain valuations, like those on a price-to-book basis, have yet to plumb the depths seen during prior recessions, notes Ajay Kapur, Deutsche Bank's Hong Kong-based strategist.

It helps, of course, that inflation has started to moderate, which gives central bankers many options for goosing their economies. Leverage, or net debt to equity, also has retreated, to 23% from highs near 47% during the Asian crisis. But in China, tight monetary conditions won't ease much before a new administration takes over early next year.

Credit Suisse pegs the odds of a 2008-style recession at 15%. That could send the MSCI Asia ex-Japan Index -- recently flitting near 475 -- down another 20% or so, to about 366, by the end of 2012. The firm thinks there's a 25% chance Europe and Asia might "muddle through," which could help the index finish next year flat. Mostly, it believes -- or hopes -- that the most likely scenario is for the European Central Bank to begin "quantitative easing," perhaps as early as the first quarter. That could swell depressed multiples and lift the index toward 595.

Deceptively Attractive

Asian stock markets look inexpensive, but they aren't yet at price/book troughs like those seen in recent recessions.

ASIA'S TWO MOST POPULOUS NATIONS are famously competitive, but Goldman Sachs' strategists think China looks better positioned than India for the year ahead. China's GDP is projected to grow 8.6% next year, compared with 7.2% for India. Inflation is expected to average 3.1%, versus 5% in India. While credit swelled more aggressively in China over the past three years, that nation holds vast foreign-exchange reserves equal to 45% of its gross domestic product, compared with 13.6% in India.

China has no want of detractors who believe the country's surging property prices and a global recession make a dangerous brew. Goldman also expects Chinese companies' profits to grow just 8% next year, compared with 10% for India. But components of the Hang Seng China Enterprises Index (or HSCEI) trade at just eight times projected profits, less than the 12.2 times for Indian stocks in the S&P CNX Nifty Index (or NIFTY). And investors are underweight China, compared with Asian stock benchmarks, and overweight India, which is why Goldman's strategists suggest selling puts on the HSCEI to help buy puts on the NIFTY.

Seoul-based Mirae Asset Global Investments also isn't too perturbed about a Chinese hard landing. "Inflation is under control," the firm notes, while risks to its financial system "are controllable," with stable fiscal revenue growth and new capital-raising initiatives helping local governments stay solvent.

Also, mortgages and property development make up just 20% of China's loan exposure. And while home prices have risen to about 6.4 times annual income -- higher in major hubs -- the increase partly reflects tight supply, what with nine million property sales a year in China, compared to 11 million marriages. Wages are growing faster than GDP, which helps consumers, and Mirae flags service sectors like tourism, entertainment, health care and education as the likely beneficiaries.

Still Behind

Asian markets didn't get the benefit of positive late-week news from Europe.